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Continued from page 2

In last month’s post, I discussed what the purchase trigger is from a consumer’s perspective – whether they buy what they “love” versus what they “value.” As I mentioned, that discussion did not take into account the action on the supply side of the equation.

On the supply side, manufacturers, designers and retailers must assess whether they can offer a product that people love, sell it at a price so that people will value it, and still make their targeted profit.

Using a new wave of predictive analytics, companies have been able to determine which products that have never existed before will perform best in each sub-segment. They can also determine what customers are willing to pay, and then understand if there is enough demand within the sub-segment for the company to be able to offer the product and make a profit versus alternative investments. Analytic tools can even help identify a level of specificity and differentiation for a particular product within that sub-segment.

Eric Schmidt, CEO of Google, recently said that every two days we now create as much information as we did from the dawn of civilization up until 2003. Today’s tools can now begin to sift through this data to find valuable insights and value drivers. In a 2011 report, the McKinsey Global Institute (MGI) said that by embracing “big data,” retailers have the potential to increase operating margins by more than 60%.

The MGI report goes on to discuss the example of Williams-Sonoma, which has databases with information on some 60 million households, tracking such things as their income, housing values, and number of children. Using this information, the company sends targeted e-mails that obtain ten to 18 times the response rate of e-mails that are not targeted. This data enables Williams-Sonoma to create different versions of its catalogs that cater to the behavior and preferences of different groups of customers.

Given this example, we would be all well served to learn to listen more. Oliver Wendell Holmes said this: “It is the province of knowledge to speak. And it is the privilege of wisdom to listen."

Or, as Sam Walton put it: “The key to success is to get out into the store and listen to what the associates have to say. It's terribly important for everyone to get involved. Our best ideas come from clerks and stock boys."

This predictive approach is essential in more mature product categories, such as footwear, denim and sunglasses. A dictative approach in mature product categories often results in products that are misaligned with consumer expectations, and results in large promotional activities, markdowns and other artificial approaches to drive sales.

The days of “stack them high and watch them fly,” without listening to what the customers have to say, has passed. We have entered the era of listening.